ELLIOTT WAVE ANALYSIS - Latest Market Commentary
Stock Indices
During recent declines from the March/April highs, many U.S. stock markets have declined in either three or seven price-swings. As reported in our previous update, these wave structures can still represent the preliminary sequences of a more sustainable multi-month counter-trend decline that is assigned a high probability event basis cycle and wave analysis. For those indices that declined only in three price-swings, and this includes the S&P and Dow Jones (DJIA), the secondary highs become vitally important resistance in maintaining a more immediate bearish outlook. Last week’s rallies from the mid-month lows have now approached these significant levels at 1872.53 and 16384 (futures) respectively. An immediate downward price rejection would confirm the next stage of declines is already underway but a break above would otherwise confirm the prolongation of the preceding uptrend with the consequences of yet another record high during the next few weeks. In the event that the S&P stages an immediate decline without breaking the overhead resistance, then next downside targets remain towards 1724.75. A break above the resistance would project upside targets to 1931.33. It is worth noting that one of the underperforming stock indices is the U.S. Biotechnology index. This formed a low last Tuesday at 2168.08 having declined from its late February high by 24.5% - ###more importantly, this decline has unfolded into a clearly visible five wave impulse pattern that confirms a multi-month corrective decline is already underway. This is an important comparison when we oversee the short-term development for the S&P and Dow Jones. Meanwhile in Europe, the Eurostoxx 50 futures have declined from their April 4th highs into a five wave pattern that confirms a larger directional change has occurred to the downside. Like the Biotechnology index, a counter-trend upswing is currently in progress but this has natural upside limitations and so we do not expect a prolonged recovery, rather a more restrained struggle higher during the next couple of weeks prior to resuming lower. In China, the Shanghai Composite index illustrates the approach of completing a multi-month contracting symmetrical triangle pattern within its larger ongoing declines. There is an imminent risk of a sharp accelerative decline out of the triangle during the next week or two. We expect a decline of approximately 25% during the next 2-3 months. 21st April 2014
Currencies (FX)
After the successful defence of the April low of 7933, the US$ index is in a very favourable position to stage a strong advance. This is due to the assumption that from the Oct.’13 low of 7899 a triple 1-2 sequence has crystallised – the first with an advance to 8148 and the following downswing to 7926, the second to 8060 that was counter-balanced by a sharp sell-off to 7933, and the third just during the last trading days: a rally to 7990 that was followed by the decline to 7958 which is right at the fib. 61.8% retracement at 7955. A break above 7990 should be accompanied by increasing upside momentum and acceleration as the US$ is expected to enter the 3rd of 3rd of 3rd. This reinforces our larger outlook with ultimate targets remaining unchanged towards 8885+/-. The corresponding scenario for the Euro/US$ advocates much lower price levels during the next months. As the finalising ‘C’ wave of a larger expanding flat pattern is shown in the early stages of its development, modest fib-price projections measure to 1.2528. Shorter-term, the April high of 1.3906 is seen as the completion of a multi-day expanding flat counter-trend sequence that depicts an almost textbook-like fib-price ratio adherence. Now, the Euro is likely to enter its 3rd of 3rd within the ‘C’ wave of the flat sequence. Meanwhile, Sterling was successful in staging another high – recent price action propelled it above the 1.6824 high of February. Two short-term scenarios are likely### – the first suggests a more immediate reversal from current or slightly higher (1.6857+/-) levels whilst the second prolongs the March upswing towards 1.6965 as a double zig zag sequence. Both scenarios however advocate a sustained sell-off in the months ahead as the advance from 1.6461 is seen as wave ‘B’ within an ongoing expanding flat pattern correction. Ultimate downside for wave ‘C’ to follow remains at 1.5888. Recent price action for US$/Yen has corroborated the downside momentum that is expected to pull the currency pair lower towards 9242-12 in the months ahead. The only ambiguity currently evident is the depth of the counter-trend rally from 10132. Whereas the preferential outlook favours a reversal from current levels to be followed by downside acceleration, the alternate scenario allows for a deeper retracement towards the fib. 61.8% resistance prior to a continuation lower. 21st April 2014
Bonds (Interest Rates)
During recent declines from the March/April highs, many U.S. stock markets have declined in either three or seven price-swings. As reported in our previous update, these wave structures can still represent the preliminary sequences of a more sustainable multi-month counter-trend decline that is assigned a high probability event basis cycle and wave analysis. For those indices that declined only in three price-swings, and this includes the S&P and Dow Jones (DJIA), the secondary highs become vitally important resistance in maintaining a more immediate bearish outlook. Last week’s rallies from the mid-month lows have now approached these significant levels at 1872.53 and 16384 (futures) respectively. An immediate downward price rejection would confirm the next stage of declines is already underway but a break above would otherwise confirm the prolongation of the preceding uptrend with the consequences of yet another record high during the next few weeks. In the event that the S&P stages an immediate decline without breaking the overhead resistance, then next downside targets remain towards 1724.75. A break above the resistance would project upside targets to 1931.33. It is worth noting that one of the underperforming stock indices is the U.S. Biotechnology index. This formed a low last Tuesday at 2168.08 having declined from its late February high by 24.5% - more importantly, this decline has unfolded into a clearly visible five wave impulse pattern that confirms a multi-month corrective decline is already underway. This is an important comparison when we oversee the short-term development for the S&P and Dow Jones. Meanwhile in Europe, the Eurostoxx 50 futures have declined from their April 4th highs into a five wave pattern that confirms a larger directional change has occurred to the downside. Like the Biotechnology index, a counter-trend upswing is currently in progress but this has natural upside limitations and so we do not expect a prolonged recovery, rather a more restrained struggle higher during the next couple of weeks prior to resuming lower. In China, the Shanghai Composite index illustrates the approach of completing a multi-month contracting symmetrical triangle pattern within its larger ongoing declines. There is an imminent risk of a sharp accelerative decline out of the triangle during the next week or two. We expect a decline of approximately 25% during the next 2-3 months. 21st April 2014
Commodities
Gold failed to trade higher during the last days which is in line with the strong downside momentum evident in 3rd waves, and the sell-off from 1331.21 to 1285.49 might well have begun a multi-week 3rd wave within a five wave expanding-impulse decline that is expected to pull prices lower towards 1100.00+/-. Shorter-term, there is some ambiguity about the depth of the smaller second wave counter-trend rally from 1285.49. It might already have completed but the lack of fib-price ratio measurements forewarns of an additional attempt higher which could push prices towards 1312.75-16.55. The risk however is clearly to the downside and that is why the preferential short-term outlook favours an immediate reversal from current levels to resume the larger decline. Silver is also pointing lower – although the 19.24 low acts as support, it is likely to be broken as wave ‘A’ of the finalising zig zag sequence within a double pattern is underway. Ultimate downside objectives are measured to 17.48-30 in the months ahead, measured basis a fib-equality ratio between the Aug.-Dec.’13 decline and the downswing from Oct.’13.### A failure to break below 19.24 would otherwise highlight the possibility of a tightening trading range during the next several weeks and imply that wave ‘X’ which separates the two zig zags did not end at 20.40 but is unfolding into a contracting symmetrical triangle. Oil’s hesitancy to stage a reversal short of the critical 105.22 high suggests a break higher and therefore shifts the probability towards an expanding flat in progress from the 105.22 high. This renders the current advance from 97.28 as wave ‘B’ within this pattern with immediate upside potential to 107.19+/- prior to a reversal and finalising sell-off to 94.41 that would synchronise with forecast declines for stock indices. The most important thing to remember is that a break above 105.22 would negate the larger expanding flat sequence that dates back to the Sep.’12 high of 100.42. Thus, this pattern would be changed to a running flat that already completed at 91.24. Consequently, this support should not be exceeded prior to oil trading into higher highs. 21st April 2014 .
